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SHRM CEO Search Continues, Focuses on HR Executive Ranks

A search for the new leader of the Society for Human Resource Management has continued past the organization’s self-imposed deadline of August 1 in part because SHRM is trying to land a senior HR executive—a process that is proving to be a challenge.


Sources familiar with the search say that SHRM hopes to attract a candidate with a strong business background as opposed to one who has led a professional association. High-level HR executives at Fortune 500 companies have been interviewed and at least one has withdrawn.


“My understanding is that SHRM is looking for someone with enough stature to get senior executives to join the organization,” one source said. Traditionally, SHRM has focused on the “softer aspects of HR,” but now is “trying to go in a different direction to attract more senior executives,” said the source, who declined to be identified because of an existing relationship with SHRM.


Such a move would fit SHRM’s effort to emphasize the strategic dimensions of HR and demonstrate how the function can influence the bottom line.


But when dealing with top-ranking corporate officials, many straightforward aspects of recruiting can become complicated—such as determining a start date.


SHRM announced in June at its annual conference in Chicago that it would name a new CEO by August 1. Despite missing that deadline, William Maroni, SHRM chief external affairs officer, said the hiring decision is not off schedule.


“SHRM’s intention has always been to complete the selection process in the early part of August,” Maroni said. “This general target remains unchanged.”


He declined to comment on the status of the search or SHRM’s selection criteria.


The hunt for a new CEO was triggered in January, when former president and CEO Susan Meisinger announced her retirement, citing the need to care for ill family members. Meisinger, who had been CEO since 2002, held a variety of roles at SHRM during her 20-year career with the organization. She left her position June 30.


SHRM is currently being led by COO China Miner Gorman, who became acting CEO on July 1. SHRM has 245,000 members and generated $105.4 million in revenue in 2007.


Mike Losey, who served as CEO of SHRM in the 1990s, said the extended search isn’t a major worry for the organization.


“I don’t see any concern,” he said. “These things take time.”


Losey said it is challenging to fill SHRM’s top spot given all the qualities desired in a candidate. These include public speaking presence, writing ability and executive skills. A deep understanding of HR issues also is key for someone who may testify before Congress.


“It’s hard to find a very, very accomplished professional person,” Losey said. “You just have to know the body of knowledge.”


For help, SHRM has turned to the executive search firm Korn/Ferry International, said Libby Sartain, a former SHRM chairwoman.


Sartain, also former head of HR at Internet firm Yahoo, said she had contacted Korn/Ferry about possibly becoming SHRM chief. As of July 31, Sartain didn’t think she was in the running.


A Korn/Ferry official who has expertise in association placements is leading the search, and a recruiter who specializes in placing HR executives also is part of the team, Sartain said.


Korn/Ferry spokeswoman Stephanie Mitchell confirmed that her company is conducting SHRM’s search. Mitchell referred other questions to SHRM chairwoman Janet Parker, who declined comment.


SHRM observers said it makes sense for the organization to tap an HR executive because the selection would underscore a strategic focus.


“I hope it means that they are looking beyond the obvious political figures and insiders and they are looking to someone who can change them significantly,” said John Sullivan, a professor of management at San Francisco State University. “It will take some convincing because SHRM has been so politically oriented as opposed to business-oriented.”


Hiring a chief executive with a corporate background will help SHRM connect better with the daily challenges that HR professionals face, said Susan Strayer, an HR consultant and author of The Right Job, Right Now.


“SHRM is most effective when they can serve as a consultant to the field rather than the representative of the field,” said Strayer, who is a SHRM member.


SHRM would gain from having “someone at the helm who’s led people and led organizations from an HR perspective,” Strayer said. “It’s much easier to consult with someone when they’ve been in your shoes.”


If SHRM is looking overseas for a CEO, it would bolster its effort to become more global, but it also would prolong the search, Sullivan said.


“It takes more time to get global people to take these positions given how weak the dollar is,” he said.


—Ed Frauenheim, Jessica Marquez and Mark Schoeff Jr.

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House Approves Five-Year Extension of E-Verify

In a year when political gridlock has halted most immigration legislation, the House overwhelmingly approved a bill Thursday, July 31, that would extend for five years a controversial government-run electronic employee verification system.


Although the measure passed 407-2 under special House rules that required at least a two-thirds majority, the final outcome doesn’t signal widespread agreement on the issue.


Many Democrats and some Republicans want to overhaul or junk E-Verify. Most Republicans and some conservative Democrats praise it for helping reduce the “jobs magnet” that fosters illegal immigration—and want to make it permanent and mandatory for all employers.


Democratic leaders and Republicans agreed that there is not enough time left in this year’s congressional session for the wider verification debate.


In the meantime, the current system, which was set to expire in November, will remain in place for five years. That’s a decrease from the original reauthorization, which called for 10 years. Congress can make changes to the program at any point within that time frame.


It’s not clear when the Senate will address the issue. A group of 12 Republican senators sent a letter to Senate Majority Leader Harry Reid, D-Nevada, on July 29 asking him to send a straightforward E-Verify reauthorization bill to the floor.


Democrats want to address employment verification as part of comprehensive immigration reform that includes a path to citizenship for illegal workers. Republicans want to strengthen border security and interior enforcement first.


As part of an ongoing work-site crackdown, the Department of Homeland Security has been attempting to mandate the use of E-Verify through regulations.


The agency’s activity has been spurred by the death of comprehensive immigration reform last year in the Senate. Since then, political conflict over immigration has stymied action.


But employment verification had to move this year because of the imminent expiration of E-Verify, a mechanism that checks work eligibility against Social Security and homeland security databases. About 78,000 employers voluntarily use the system, formerly known as Basic Pilot. 


The reauthorization bill requires that the Government Accountability Office, the investigative arm of Congress, conduct two E-Verify studies. One would assess the causes of incorrect nonconfirmations of legal workers. The other would examine its effect on small businesses.


In addition, the legislation directs the homeland agency to make regular payments to the Social Security Administration to fund the costs of conducting employee checks.


Many members of Congress have expressed concerns about the efficacy of E-Verify. Their misgivings echo those of the HR Initiative for a Legal Workforce, an organization led by the Society for Human Resource Management.


The HR group criticizes E-Verify for being inefficient, prone to error and susceptible to identity theft. It cites a Social Security database error rate of 4.1 percent that could wrongfully declare millions of people ineligible for work. E-Verify backers argue that it has demonstrated an error rate of less than 1 percent.


During the House floor debate on Wednesday, July 30, Rep. Zoe Lofgren, D-California and chairwoman of the House Judiciary subcommittee on immigration, voiced skepticism about E-Verify but said that shutting it down before Congress sorts out verification policy would be wrong.


She noted that 11 bills have been introduced addressing the issue.


“There is much work still to be done,” Lofgren said. “None of us wants the current system to go away while we work to improve and get an even better system.”


The author of the E-Verify extension bill, Rep. Gabrielle Giffords, D-Arizona, has testified against the system, detailing troubles that employers have had in Arizona, one of several states where the legislature has mandated that some businesses use the system.


She vowed that E-Verify will not last the full five years. “The current employment verification system needs to be replaced or reformed,” she said. “We can do better.”


Giffords is co-sponsor of a bill written by Rep. Sam Johnson, R-Texas, that would clean up Social Security records and then replace E-Verify with a mandatory electronic verification system based upon existing child-support enforcement networks in each state. It also includes provisions for a biometric system to protect worker identity.


The HR coalition’s strong backing of that bill has drawn sharp criticism from the homeland agency and some congressional Republicans, who say SHRM wants to kill employment verification. SHRM strongly denies the accusation and asserts that it wants to establish a system that is more effective than E-Verify.


In their defense of E-Verify, Republicans made oblique references to the kerfuffle.


“I want to set the record straight,” said Rep. Lamar Smith, R-Texas and ranking member of the House Judiciary Committee. “Participating employers are happy with the Basic Pilot program. It is hard to believe that those who attack E-Verify are serious about … reducing illegal immigration.”


—Mark Schoeff Jr.

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Rate of 401(k) Hardship Withdrawals Jumps

Amid a weakening economy and rising layoffs, the percentage of 401(k) plan participants who have made hardship withdrawals from their accounts jumped 21 percent during the first six months of 2008 compared with the same period last year, according to Mercer. During the same period of time, the number of new loans taken out by plan participants increased 4.5 percent.


The trend concerns retirement plan consultants because it might indicate that employees aren’t exhausting all of their options before making hardship withdrawals.


“Usually you would see people take out loans first and then go to a hardship withdrawal,” said Eric Levy, worldwide partner, retirement business leader at Mercer.


The fact that the rate of hardship withdrawals has exceeded the rate of new loans might indicate that many of these employees have maxed out their loans, and thus have to rely on hardship withdrawals, said Mike Kushner, an ERISA attorney with New York-based Curtis, Mallet-Prevost, Colt & Mosle. By law, 401(k) plan participants can take out a loan of $50,000 or 50 percent of their vested balance.


A lot of the participants who are making hardship withdrawals could be terminated employees. Such employees can make hardship withdrawals, but can’t take out loans, Levy notes.


This trend could also be a sign that 401(k) plan administrators aren’t doing a good job of making sure that participants have maxed out their loans before making hardship withdrawals, said Don Stone, president of Plan Sponsor Advisors, a Chicago-based consultant.


“I am not sure all of the vendors are tracking this and that employers are paying attention to it,” he said.


The increase in hardship withdrawal requests from plan participants has likely put a burden on many plan administrators, Kushner said.


“It’s a sizable burden,” he said, noting that administrators have to interpret plan documents, make sure the rules are being applied uniformly and that participants don’t have other assets readily available. “There are a number of things that might not have been tracked as tightly as they should have been in the past because it didn’t come up as often,” he said.


To ensure that these transactions are being handled correctly, employers need to stay in touch with their administrators and double check any requests for hardship withdrawals, experts say.


While the number of hardship withdrawals has jumped, it still represents only a small percentage of the plan participant population, Levy noted. Two percent of plan participants have made hardship withdrawals, according to Mercer.


Employers might also want to do additional education and counseling on the implications of hardship withdrawals, Levy said.


For example, if plan participants make withdrawals before they are 59½, they will have to pay income taxes and a 10 percent penalty within the next year.


Depending on how much money they are taking out, that sum could push the employee into a higher tax bracket, Levy said.


—Jessica Marquez


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Massachusetts Employers Spared Higher Health Assessments

Legislation nearing final approval by Massachusetts lawmakers imposes new assessments on insurers and hospitals to help fund part of the state’s health care reform law, but it spares employers—at least for now—from making bigger contributions.


Massachusetts Gov. Deval Patrick said this month that he intended to propose tightening an existing rule—known as “Fair Share”—that requires employers with at least 11 full-time employees in the state to pass one of two tests to avoid an annual assessment of $295 per employee.


Revenue from that assessment, which has been running about $7 million a year, is used help fund the Commonwealth Care program. That program, which was created by the state’s 2006 health care coverage reform law, subsidizes health insurance premiums for roughly 175,000 previously uninsured lower-income state residents.


If the tightening of the rule didn’t generate $38 million in revenue, Patrick had proposed that legislators give a state agency authority to raise the $295 assessment to a level it projected that would meet that target.


However, the state’s House and Senate declined to include the governor’s proposal in budget legislation they approved this week. Legislators, though, did adopt proposals that levy assessments of $33 million on health insurers and $20 million on hospitals, and a proposal to divert $35 million from an employer-paid fund that pays health insurance premiums for the unemployed. Those funds would be used to help support Commonwealth Care.


A final version of the bill could be approved Thursday, July 31.


Business lobbyists warn, though, that the issue is not over. That is because they expect Patrick to propose a tightening of the fair share test through regulation.


Under the current rule, an employer is exempt from the annual assessment if at least 25 percent of full-time employees are enrolled in its group health insurance plans.


If that primary test is not met, employers that pass a secondary test—by paying at least 33 percent of the premium for individual coverage for employees within 90 days of their starting work—are exempt from the assessment.


Patrick has proposed that employers be required to pass both tests to be exempt from the $295 assessment, a change that would result in more employers, such as those in high-turnover industries that impose long waiting periods before new employees are eligible for coverage, being forced to pay, business groups say.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.


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Manufacturer’s Move to High-Deductible Plans Requires Continual Employee Education

When it came to introducing high-deductible health insurance plans to its workforce, Sperian Protection USA Inc. decided candor was only way to help employees cope with the financial sting of the plans.

“We made a conscious decision that we wouldn’t dance around the issue and that we would take it head on,” says Mike Vittoria, vice president for human resources. He helped Sperian Protection introduce consumer-driven health plans to the company’s 1,500 employees in 2004. “We realized that they weren’t convenient plans and we were upfront. Employees will respect that, we thought.”

Like many companies, Sperian Protection, which is based in Smithfield, Rhode Island, was facing double-digit health insurance premium increases four years ago. It turned to consumer-driven health plans to help manage those costs. For the company, the new plans weren’t introduced to shift costs to employees—it still pays a hefty portion of the health bill—but to urge workers to take responsibility for their own health and to see the dollar signs for themselves, Vittoria says.

“They started to become aware that health care wasn’t free,” he says. “We saw value in getting our employees involved in the cost of health care.”

The company knew success entailed an extensive communication plan.

“This requires a lot of re-educating the workforce,” Vittoria says. “Employees [in 2004] didn’t like it.” He says the company had one employee at an information meeting say, “I should go to the doctor and just give them my card and never see a bill.”

“Employees want their health care to be convenient,” Vittoria says. “We’re probably the most complicated plan out there.” He calls it an “HRA carved out of a PPO.”

Currently, the company has both health reimbursement and health savings accounts, both of which allow employees to save for future health costs.

It presents employees with a “layered” plan deductible, in which the employee pays the first $2,250 for single coverage and the company pays all costs between $2,250 and $10,000. After $10,000, insurance picks up the costs.

It isn’t easy to grasp, and requires Sperian Protection to hold monthly meetings for employees, Vittoria says.

“We don’t do the once-a-year open enrollment meeting,” he says, adding that most employees are satisfied with the high-deductible plan. “We are constantly educating the workforce.”

Vittoria says a major key in keeping costs low is the company’s focus on health and wellness. To be eligible for one of its plans, the company requires that employees participate in health risk assessments to identify chronic illness that, if left unmanaged, could incur expensive trips to the emergency room.

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HSAs Reign Among Consumer-Driven Plans Nearing the End

Washington’s five-year honeymoon with health savings accounts may be coming to an end, though no one envisions a divorce.


    The honeymoon began after Congress—at the urging of the Bush administration—authorized HSAs as part of broader Medicare prescription drug legislation it passed in late 2003.


    That law showered HSAs with tax breaks. Enrollees in high-deductible health insurance plans to which HSAs must be linked can make tax-deductible or pretax contributions to HSAs, while funds can be withdrawn tax-free from the accounts to pay for uncovered health care expenses.


    Eager to jump-start HSAs, the Bush administration pushed regulators to develop guidance quickly.


    “This was an important priority for the administration,” recalls Bill Sweetnam, then-benefits tax counsel for the Treasury Department and now a partner with Groom Law Group in Washington.


    The first batch of Internal Revenue Service guidance came a little more than three months after HSAs became available, which was lightning speed compared with action on other employee benefit issues. The guidance laid out which health care services are preventive and, thus, under the law authorizing HSAs, fully covered by linked health insurance plans.


    The guidance kept coming at a rapid clip, with the most recent batch issued in June. The latest direction, among other things, describes services that onsite corporate medical clinics can offer at little or no cost without employees losing their eligibility to participate in an HSA.


    Since passage of the authorization legislation, regulators have had company in giving HSAs special treatment. Three years after first blessing HSAs, Congress further sweetened the arrangements.


    In late 2006, lawmakers approved and President Bush signed a bill that allows employees to make bigger HSA contributions and clarified an interaction problem between HSAs and so-called grace periods for flexible spending accounts. This made it easier for employers to move from first-generation consumer-driven health plans linked to health reimbursement arrangements to plans linked to HSAs.


    All that activity helped accelerate HSA adoption, says Gregg Larson, national HSA product leader with Affiliated Computer Services Inc. in Minneapolis.


    As of January 1, 6.1 million people were enrolled in high-deductible health insurance plans linked to HSAs, a number that nearly doubled in just two years, according to a survey by America’s Health Insurance Plans, a Washington-based industry trade group.


    Now, however, there are signs that the honeymoon may be coming to an end among lawmakers and, depending on the outcome of the November presidential election, at the White House.


    One sign came in April when the House of Representatives passed legislation to require banks and other financial institutions that administer HSAs to substantiate that account distributions are for health care-related expenses, such as prescription drug co-payments.


    With a health care substantiation requirement, account holders in some cases would have to file a claim form and provide a receipt to the bank where they established their HSAs to receive reimbursement.


    To handle that, many banks would have to acquire new administrative systems and those costs would be passed on to account holders. Those added costs and complexity might result in some banks withdrawing from what already is a low-profit business, experts say.


    At the same time the substantiation legislation was being considered, several legislators blasted HSAs.


    Rep. Pete Stark, D-California, who chairs the House Ways and Means health subcommittee, said HSAs over the long term would lead to higher health care costs because enrollees may delay getting needed care, resulting in more expensive treatment later.


    Another panel member, Rep. Xavier Becerra, D-California, labeled HSAs as tax shelters for the wealthy.


    Indeed, Bush administration officials warned of a presidential veto if the substantiation legislation, which the Senate has yet to consider, received final congressional approval.


    But whoever becomes the next president might not take the same line.


    Sen. Barack Obama, D-Illinois, the presumptive Democratic presidential candidate, is at best lukewarm about HSAs. Responding earlier this year to questions posed by the American Academy of Family Physicians, Obama described HSAs as a helpful way of saving taxpayers money “in the current health care environment. But the current health care environment is unsustainable and health saving accounts don’t do enough.”


    By contrast, Sen. John McCain, R-Arizona, the presumptive Republican presidential candidate, has been more supportive. While offering no specifics, he says that if elected he would work to encourage and expand HSAs. The accounts “take an important step in the direction of putting families in charge of what they pay,” McCain says on his Web site.


    The contrasting views means the future of HSAs could depend on the outcome of the November election, says Grace-Marie Turner, president of the Galen Institute, a health policy organization based in Alexandria, Virginia.


    Others say that regardless of the election results, HSAs are here to stay, simply because millions of people already have coverage through them.


    “There are too many to wipe them out. It would be very difficult to reverse course at this point,” says Ted Nussbaum, a principal with Watson Wyatt Worldwide in Stamford, Connecticut.


    Other Washington observers agree, but say that if Obama is elected and the Democrats continue to control Congress, there could be a drive to limit HSA availability.


    “I don’t think HSAs will be taken away, but I also don’t expect them to be improved. Depending on the political climate, there could be an effort to pare back the tax breaks for those above certain income levels,” says Frank McArdle, a consultant in the Washington office of Hewitt Associates.


    There are numerous precedents in the benefits realm of linking tax breaks to income. For example, tax credits for dependent care expenses and adoption expenses are linked to income. In addition, employees covered by corporate pension and savings plans can make full tax-deductible contributions to individual retirement accounts only if their incomes are below certain levels.


    Still, McArdle says, attempts to link HSA eligibility to income would be strongly resisted by congressional Republicans.


    McCain would be likely to offer proposals to further sweeten HSAs, but if Democrats continue to control Congress, such proposals would have little chance of passage, observers say.


    Indeed, proposals the Bush administration has made during the past two years to boost maximum contributions that can be made to HSAs have received scant attention from lawmakers.

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Materials Distributor Builds Employee Support for a High-Deductible Health Plan

Before BlueLinx Co. introduced consumer-driven health plans to its employees, few of the 3,600 workers at the construction materials distribution company knew the difference between the cost of going to the emergency room and the cost of visiting a doctor’s office instead.
Dean Adelman, the Atlanta-based company’s chief administrative officer, helped introduce a high-deductible health insurance plan in 2007 that was much different from the company’s health maintenance organization plans.

Reception was difficult and that first year was bumpy, Adelman says. “HMOs are pretty much free [to employees], so it was a shock. For over 30 years we trained people to pay $10 to go see a doctor, and now we’re asking them to look at the cost. It’s been a learning experience.”

The company began offering high-deductible plans to handle skyrocketing health premiums by getting employees involved in health costs and control, he says.

“Our biggest success so far has been getting people to move from brand-name drugs to generic, because they now see the cost,” Adelman says.

This year’s coverage comes with deductibles that range from $1,500 to $4,500, with the company offsetting half of the deductible by depositing that amount into an employee’s health savings account. Employees add to their health savings accounts with pretax income.

Once the deductible is met, employees must pay 20 percent of all services.

A highlight of the plan is that most preventive services, such as annual physicals, are covered 100 percent. BlueLinx also offers incentives, such as $100 for taking part in a company-sponsored health risk assessment, Adelman says. The idea is to help employees catch any medical conditions early to avoid expensive treatment later, he says.

BlueLinx still offers traditional plans, such as HMOs and PPOs, but they have heftier payroll deductions and don’t feature incentives.

The first year was tricky because most employees did not understand the high-deductible plan, but this year has been easier, Adelman says. Last year, more than half of the employees who enrolled in the high-deductible plan linked to a health savings account did not spend all of the money in those accounts, which means they can save it and apply it to future medical expenses.

About half of the company’s employees are enrolled in the consumer-driven plan, and Adelman expects that to increase. “Anyone who signed up for the [consumer-driven health] plan in 2007 stayed with it,” he says.

“It’s been a learning experience and we are seeing a lot of success stories. People are losing weight and getting off their Lipitor,” a cholesterol-reducing prescription medication, Adelman says. Wellness initiatives have allowed employees to save on health costs and thus save their own money, he says. “In the long term, people see the savings.”

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Switch to High-Deductible Plans Not Easy for Employers

For scores of companies that have faced double-digit annual increases in health care costs, making the move to high-deductible health plans has become the ticket to limiting increases by forcing employees to better manage their care and costs.

The switch, however, is never easy, according to experts and companies that have made the change, including Humana Inc., based in Louisville, Kentucky; Sperian Protection USA Inc., based in Smithfield, Rhode Island; and BlueLinx Co. in Atlanta.

“The reality is that for the last 20 years, employees and their families have been insulated from the actual costs of health care,” says Randall Abbott, a senior consultant with Watson Wyatt Worldwide who is based in Wellesley Hills, Massachusetts. “This is changing the mind-set of those who’ve been accustomed to not sharing the costs of care. For many, this is a role they don’t want to assume.”

A tough sell
Consumer-driven health plans can be a tough sell to employees, some of whom are accustomed to using their health insurance coverage cards at every doctor visit and never seeing a bill thereafter, Abbott says.

“Employees tend to be skeptical of anything new,” says Bill Sharon, senior vice president for Aon Consulting in Tampa, Florida.

While employees may be accustomed to $10 or $15 co-payments and the ability to pay modest contributions for expensive emergency room visits and brand-name prescription drugs, those days are over at a host of companies.

For instance, with high-deductible health insurance plans, the coverage doesn’t kick in until the employee first meets that deductible, which pushes workers to act as more savvy consumers when it comes to shopping around for cheaper services and seeking generic drugs.

These plans often come with health savings accounts. These accounts allow employees whose deductibles this year are at least $1,100 for individual coverage and $2,200 for family coverage to contribute pretax dollars into an account to pay medical expenses.

Also, health reimbursement arrangements linked to high-deductible health plans allow employers to fund the accounts that help employees pay for uncovered health care expenses.

Employers are providing cash incentives, usually put in health reimbursement arrangements, for employees who participate in health risk assessments and wellness programs, such as smoking cessation and weight-loss initiatives, steps that experts say can reduce health costs for both employers and employees.

Controversial approach
The move to consumer-driven health plans, though, has its share of controversy.

Opponents of the movement argue that cash-strapped employees will forgo necessary health tests and doctor visits to avoid high bills and that adoption of consumer-driven health plans is another way for companies to shift more costs to employees.

A major issue in implementing high-deductible plans is when employers underestimate employees’ concerns or fail to communicate effectively, says Abbott, the Watson Wyatt Worldwide consultant.

“A lot of employers feel that they can announce [the switch to consumer-driven plans] and leave it there for employees at open enrollment,” he says.

Aon’s Sharon says employers also can get into trouble if they “oversell” a consumer-driven plan by making it sound better than it is.

“There are good stories and bad stories out there about how to present these plans,” he says. “When the plan is designed correctly and the communication is done effectively, companies can see 40 percent to 50 percent enrollment” in high-deductible health plans.

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Retail Clinics Rise With High-Deductible Health Plans

Much of the growth in the retail medical clinic industry has been attributable to insurers adding clinics as in-network providers in traditional health plans, but the consumerism movement is expected to further boost this fledgling market.

When retail clinics appeared on the health care scene in the early part of this decade, they seemed as if they could be a natural complement to consumer-driven health plans that were emerging at the time. In fact, retail clinic growth has pretty much coincided with that of consumer-driven health plans.

Even though retail clinic providers saw consumer-driven plans as a potential growth catalyst, disappointing initial enrollment in such plans forced retail clinics to consider alternatives, says Tom Charland, CEO of Merchant Medicine, an online consulting and research company that focuses on retail medicine.

“We had not yet actually figured out how to get the attention of employers and, at the time, it was cash-only” to visit a retail clinic, says Charland, who is also a former executive of Minneapolis-based MinuteClinic Inc., the largest and one of the first providers of retail clinics.

“So we went through a whole process of working with employers and insurance companies. This was back when insurance companies were first hearing about getting medical care in a retail store,” he says. “The medical directors at these insurance companies were looking at us sideways and were not real excited about the idea.”

‘Some proving to do’
“Health plans and employers initially wanted to understand whether retail clinics were actually going to reduce costs or whether they were an additive service on top of other things people were doing,” says Steve Raetzman, senior health care consultant at Watson Wyatt Worldwide in Arlington, Virginia. “So the industry had some proving to do.”

But once the consumer-driven health plan market started to ignite, so did the retail clinic industry. Today, there are nearly 1,000 retail clinics operating in the U.S., compared with about 100 in 2006. MinuteClinic is the largest operator, with 511 clinics in 24 states.

“Once we saw it start to take off, it was an accidental synergy that was remarkable,” Charland says. “So that’s why we had a number of employers start to get very interested in it.”

In 2005, Black & Decker Corp., based in Towson, Maryland, was among the first employers to contract directly with MinuteClinic so its employees could access the clinics in nearby Target stores as an in-network provider, says Ray Brusca, vice president of benefits at the manufacturer.
At the time, Black & Decker’s health plan administrator, Cigna HealthCare, did not recognize the clinics as an in-network option, he says.

“Cigna was opposed initially to the use of clinics,” Brusca says. “Its medical director was convinced that all the visits would have follow-ups with primary care physicians,” thereby increasing, rather than reducing, the use of medical services.

Fortunately, Black & Decker’s experience proved otherwise, and Cigna as well as most major insurers now include most retail clinics in their provider networks.

Because Blue Cross & Blue Shield of Minnesota is based in MinuteClinic’s home state, it was among the first health insurers to embrace the retail clinic concept, says Louise Clyde, director of allied network management at the Blues affiliate.

Birthplace of the retail clinic
“Minnesota is the birthplace of the retail clinic, she says. “Retail clinics bring care to the member rather than the member looking for care.”

In tracking utilization by member type, Blue Cross & Blue Shield of Minnesota is finding that retail clinic users are younger than the general population, are significantly less ill than those visiting other medical providers and are twice as likely to be enrolled in a consumer-driven health plan than any other plan type, Clyde says.

She also says Blue Cross & Blue Shield of Minnesota’s experience has found that the care delivered by retail clinics can be equal to or better than traditional medical providers.

For example, applying both the National Committee for Quality Assurance and Minnesota’s own Institute for Clinical Systems Improvement guidelines, Blue Cross & Blue Shield of Minnesota found that retail clinics performed better than urgent care and doctors’ offices in treating patients for two specific conditions, Clyde says.

Urgent care centers and doctors’ offices provided appropriate care for respiratory infections 84 percent of the time, but retail clinics did so 93 percent of the time, she says.

In addition, urgent care centers and doctors’ offices provided appropriate care for sore throats 81 percent of the time, compared with 97 percent for retail clinics.

Although quality may eventually be a selling point for retail clinics, most health industry experts are finding that cost and convenience are the primary reasons that individuals use the clinics, which is why experts say enrollment growth in consumer-driven health plans likely will spur additional growth of retail clinics.

“There are 11 million people in consumer-driven plans now. It could be a contributing factor to the growth of the retail clinic market,” says Amrita John, a Bloomfield, Connecticut-based director in the product area at Cigna. Moreover, hospital systems and physician groups are jumping into the market, causing further expansion, she adds.

“There’s enough membership in those plans now to suggest that the people who use them are becoming more aware of their alternatives and purchasing behaviors as it relates to the utilization of care,” says Chip Phillips, president of MinuteClinic. “And, as people become more aware … they begin to ask more questions with respect to price and service. As we assume more financial responsibility for the cost of our care, we start to pay more attention to where and how we’re spending those dollars.”

“Retail clinics can become a big part of the health care delivery system,” particularly because they are proving to be “no worse and maybe even better than traditional care,” says Abir Sen, co-founder and chief strategy officer of RedBrick Health, a Minneapolis-based consumer-driven health care communications and education company.

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Kelly Services Posts 2Q Net Income Down by One-Third, Expects Rough ’08

The president of leading contingent staffing firm Kelly Services Inc. says he foresees difficult times for the remainder of 2008.


“The second quarter was a rough one,” said Kelly Services president and CEO Carl Camden during an earnings conference call last week.


“Overall demand for labor in the U.S., already weak, has worsened since we last reported to you, and demand for temporary staff is declining at an even faster rate.”


Kelly’s U.S. commercial business has seen declining revenue for the past seven quarters, Camden said.


The length of the declines is outpacing the six quarters of declines Kelly saw during the recession of 2001, he said, although current declines have not been as large on a percentage basis.


“There is no doubt the economy has worsened in the last three months, and that difficulties experienced in the U.S. and [the U.K.] are now being experienced elsewhere,” Camden said.


“It wouldn’t be surprising if conditions continued to be difficult throughout 2008 and perhaps longer.”


The Troy, Michigan-based staffing firm reported net income of $10.5 million, or 30 cents a share, on revenue of $1.45 billion for the quarter ended June 29.


That compares with net income of $15.3 million, or 42 cents a share, on revenue of $1.42 billion for the same quarter last year.


For the six-month period, Kelly reported net income of $18.7 million, or 54 cents a share, on revenue of $2.84 billion. That compares with net income of $27.2 million, or 74 cents a share, on revenue of $2.76 billion during the first half of 2007.


Given the continued economic uncertainty, Camden said Kelly would not provide quarterly earnings guidance.


In the conference call, the company appeared to attribute the decline in margin in part to cost-cutting not keeping pace with revenue declines in the U.S. and declines in gross profit margin in some other areas.


Declines were led by a 21 percent drop in operating earnings year over year for Kelly’s Americas commercials business. The segment represents about 45 percent of Kelly’s total business, Camden said.


The firm’s professional and technical business in the U.S. was flat year over year and down 3 percent from the first quarter, when adjusted for the Easter week, which fell in the second quarter last year and in the first quarter of this year, he said.


General economic conditions worsened during the quarter in Europe, especially in England and to a lesser extent in Western Europe, Camden said, leading to a 7 percent decline in Kelly’s revenue there during the quarter.


But some areas are still seeing growth, including France, where Kelly’s revenue increased 4 percent during the quarter, and Eastern Europe, where Kelly’s revenue spiked 33 percent, led by strong performance in Russia, Camden said.


Revenue for Kelly’s outsourcing and consulting group, which represents about 4 percent of total revenue, increased nearly 60 percent for the quarter, year over year, to $61 million.


Kelly Services plans to retain its focus on the group’s higher-margin, fee-based business that capitalizes on corporate outsourcing of human resource functions while expanding its professional and technical business, improving its operating margins and diversifying geographically, Camden said.


In mid-July, Kelly said it had entered an agreement to acquire the shares of the Portuguese subsidiaries of Amsterdam, Netherlands-based Randstad Holding N.V. for an undisclosed amount.


Kelly said it expects the deal, which is subject to approval from the European Commission, to close during the third quarter of this year.


The market for staffing firms is not favorable right now and faces “a pretty significant headwind,” given that it is cyclical, said Tobey Sommer, a director in the equities research department of SunTrust Robinson Humphrey, which said in a disclaimer that it also provides investment banking services and other services for Kelly.


The agency has a neutral rating on Kelly’s stock, Sommer said.


Kelly’s fee-based outsourcing and consulting business “is one of a few bright spots right now” for both Kelly and the staffing industry as a whole, he said.


“There appears to be an opportunity there, [and] Kelly may have an edge in competing for that stuff because their strategy has been for years to focus on the largest customers around the globe.”


Filed by Sherri Begin of Crain’s Detroit Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.